GRG and Carillion: MPs launch two small business inquiries

Not one, but two powerful parliamentary committees have launched inquiries into protection for small businesses in the wake of Carillion’s collapse and the RBS’ GRG scandal.

The Treasury Committee’s inquiry will examine the lessons to be learned from RBS’ Global Restructuring Group (GRG) scandal, and more broadly at the state of the market for SME finance.

The GRG was a unit within RBS which ostensibly aimed to help the taxpayer-owned bank’s struggling small business clients. But leaked internal memos exposed a cutthroat culture, enabled and encouraged by RBS’s leadership, where staff were encouraged to raise fees on struggling clients to "leverage an upside". Ultimately only one in every 10 businesses in GRG's care returned to normal banking relations.

Adjacent to the Treasury inquiry, the Business, Energy & Industrial Strategy (BEIS) Committee will pick apart the catastrophic Carillion collapse. One of the UK’s biggest government contractors, Carillion’s demise this January left 30,000 small firms unpaid. Creditors are only expected to recover 0.8 to 6.6 pence in the pound.

Same old, same old

The topics of these inquiries will sound familiar to many people. Lawrence Tomlinson, the BEIS’s former ‘entrepreneur in residence’, raised his concerns over the GRG in 2013 already and it’s rumbled on for four years. The chronic mistreatment of small suppliers by large businesses also isn’t a new theme.

It’s a weariness that Nicky Morgan MP, head of the Treasury Select Committee, acknowledged. “Little has changed since GRG to prevent similar mistreatment happening again, nor to guarantee victims access to fair and reasonable redress.

“Entrepreneurs and small business owners are frequently held up as the backbone of the economy, and as part of the solution to the UK's productivity problem. They deserve to be treated fairly when they borrow from banks, and have access to justice when things go wrong.

Morgan explained the Committee will use the GRG scandal as a departure point to consider the regulation of SME lending, and whether the avenues for dispute settlement and redress afforded to SMEs are appropriate.

The BEIS committee chair, Rachel Reeve, also noted how Carillion’s failure highlighted the existing problem of “deliberate supply chain bullying” which “can be devastating for business owners and contributes to thousands of business deaths each year.

“We want to hear if the government could be doing more to stop this.” The business inquiry will also look into small business productivity, training and late payment.

“Crux of the matter”

Lawrence Tomlinson welcomed the parliamentary inquiries, even if “it has taken four years to get to this point, following the original referral of my finding to the regulators”. He added, “The ever growing momentum to hold those responsible to account, achieve justice for those affected and prevent such a disgraceful scandal from occurring again is to be welcomed.”

Tomlinson explained that the onus is now on MPs to adequately deal not just with the scandals, but with the structural problems in the SME finance sector. “The regulators and law enforcement agencies need to review what happened and ensure individuals are held to account,” he said.

“Most importantly, we need to recognise how this was allowed to happen in the first place and ensure we prevent it from ever occurring. Tribunal systems and small business lending regulation may support that, but whilst there remains a banking oligopoly, institutions like RBS remain too big to fail; too big to manage; and too big to regulate. Without smaller banks and greater competition, any regulatory change will be of minimal impact.

“With proper oversight, the actions of GRG would never have been allowed to occur. We need banks of a size where such failures in corporate governance are not possible.”